Showing posts with label Geology. Show all posts
Showing posts with label Geology. Show all posts

Saturday, July 23, 2011

McKinsey, Five Misconceptions About Productivity


One of the benefits of a six month sabbatical is that we have aggregated many articles from McKinsey and others that pertain to the work we are doing at People, Ideas & Objects (PI&O). These articles are ideal for weekend postings and will enable us to fill out several months of weekends blog posts. In this first post McKinsey have an article entitled “Five Misconceptions About Productivity

In oil and gas we are primarily concerned with the productivity of earth scientists and engineers. Specifically their ability to find and produce more oil and gas. These people’s ability to produce more energy is challenged today by steep decline curves and the challenge of finding the reserves. Since 2005 the world’s oil production has remained somewhat static and its unknown what influence OPEC may have been able to impact the market. Nonetheless the valuable energy resources require significantly greater volumes of science and engineering per barrel of oil produced. These science and engineering resources are somewhat limited in their volume and the capacity to increase them is very difficult, therefore we are left with the need to increase their productivity.

In today’s marketplace we thankfully have the means at our disposal to significantly effect the productivity of our organizations. In 1776 Adam Smith determined the division of labor was able to lead to higher productivity. Division of labor is the source of all economic output. That is to say that through successive reorganizations and application of the principles behind the division of labor we have been able to reach the level of economic activity we enjoy today. Therefore to expand the output of the oil and gas industry, which we can all agree is required, will require that we reorganize ourselves to achieve a higher level of economic output.

As the industrial revolution had a significant impact on our quality of life, the coming Information & Communication Technology revolution will have a significant impact on the output of our organizations. This is the opportunity that this community has in hand with PI&O. In this McKinsey article they point out a number of misconceptions about productivity, the one that stands out for me is;

Productivity is only about efficiency and is designed to bolster corporate profits.
Productivity can come either from efficiency gains (such as reducing inputs for given output) or by increasing the volume and value of outputs for any given input (for which innovation is a vital driver). The United States needs to see both kinds of productivity gains to experience a virtuous growth cycle in which increases in value provide for rises in income that, in turn, fuel demand for more and better goods and services.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of PI&O. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining PI&O can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. Email me here if you need an invite.

Wednesday, September 16, 2009

Oh those Russians.

We see in this Reuters article that Russia wants western based producers to develop their offshore energy resources. I think this shows that the demand for the type of skills that the Duverney's and BlackPearl's, the prototypical producer, is high amongst National Oil Companies (NOC's). 

I think this is indicative of the difficulties of finding and producing oil and gas. The demands of energy, in the non-easy era, are particularly hard from the engineering and earth science perspective. I think the International Oil Companies (IOC's) have learned that they can rely on the skills of the prototypical start-up to build their reserves. NOC's can take a lesson from Russia who appear to be actively searching for the skills to develop their reserves. And were only to happy to seize assets from Shell and BP a few short years ago. 

Adding political risk to technical, financial and all the other risks these teams face. Is just another day at the office. 

Technorati Tags:

Sunday, May 31, 2009

Changes at Shell.

A number of articles are appearing about the announced changes at Shell. A new CEO Peter Voser takes over July 1, 2009 and has announced a major overhaul of the firms operations. Fox notes:
Oil giant Royal Dutch Shell on Wednesday announced a series of changes to senior management roles and responsibilities, which it said were aimed at creating a sharper focus on operating performance and technology.
I interpret these changes as an admission that the engineering and earth sciences necessary for each barrel of oil produced are increasing. The Calgary Herald reported that Voser said:
"Organisationally, we are too complex, and our culture is still too consensus-oriented. Our costs are simply too high," Voser said in an email to staff, excerpts of which were seen by Reuters.
Details of the changes include the consolidation of divisions into operating units around geographical locations. North America being one in which I would assume Houston will take the lead role in. It is also reported that many lay offs will occur throughout the company. 
The Calgary Herald notes many of the differences between Shell, Exxon and BP's announced reorganizations. These are all ongoing and reflect different characteristics and management styles. 
Exxon is renowned within the industry for its strict management practices and insisting employees do not deviate from standard operating procedures. BP, on the other hand, had a risk-taking culture that allowed considerable freedom to managers of units or fields, and Shell had a culture of making decisions by consensus.
What does People, Ideas & Objects offer firms such as Shell, Exxon and BP.
It's interesting the three methods that are used by Exxon (Strict Management Practices), Shell (Consensus) and BP (Risk Oriented.) Neither of these management practices or strategies are precluded in the People, Ideas & Objects. It is very clear that a unique strategic identity is enabled in each producer through this system. This also does not preclude a strong governance structure. With the reduction of the hierarchy an alternate form is required and one has been developed. That is the Military Command & Control Metaphor used within the Joint Operating Committee affording the pooling of resources and reducing the redundant capabilities built within each silo'd oil and gas firm. 

Lastly I would point to how this project is a commercially viable one by pointing out the business model of People, Ideas & Objects and the Community of Independent Service Providers. And the Technical Vision  of where the Information Technologies promise the greatest value and how this product is supported technically. 

These firms are a part of the global oil and gas industry and therefore part of the focus of this development. I encourage you to forward this post to the people you know at Shell, Exxon or BP and have them read for themselves what is possible. I would also encourage you to get involved in moving this vision forward by joining in this process

Sunday, May 24, 2009

Exploration facts.

There's news from Reuters and the Calgary Herald that Canadian oil and gas companies costs of finding and producing oil are expected to fall this year. What has to be record prices is the announcement that the cost of replacing one barrel of oil rose to $22.72. It does not mention whether this was attributable to the higher level of engineering and earth science per barrel of oil, or, the lower volume of discoveries of reserves from exploration and production activities.


Irrespective of the specific reason why the price is rising, the same costs in 1999 were only $4.38. (All prices are reflected in Canadian dollars.) What the two articles subtly suggest is the costs associated with drilling and field work were up substantially. I have mentioned many times that the oil and gas company manager operates more as a Seal trainer then someone interested in developing the business they are in. They are only more interested in making themselves look more important by doling out the fish food to the service companies based on a "what have you done for me lately" basis. Between holding their captive audience over lunch to hear how wonderful they are, and talking to the press about how greedy the service industries have become, these oil and gas company managers pretend to have a full slate of work. Nothing could be further from the truth and I would suggest, again, that these people be shown the street as soon as possible. 

I have addressed these issues in the Draft Specification. The ability to develop the service industry is a critical part of an innovative oil and gas industry. The constant boom and bust cycles, and the "this quarter closing" ritual have made it difficult for service companies to develop any long term vision. Make hay while the sunshine's and hunker down when the storms role in are the only two operational strategies. To move forward from an engineering and earth science point of view. The oil and gas companies must approach the service industries with an eye to developing usable and innovative technologies together. The companies receive 100% of the revenues associated with producing oil and gas. When it comes to paying the royalties for those that are entitled to them, or the service companies that help in the exploration and development, the oil and gas company manager treats them as if they are a leach on their otherwise unearned fortune. The Resource Marketplace Module and Research & Capabilities Module address these issues and offer a solution of how the oil and gas and service industries can achieve greater throughput, innovation and capabilities. 

To speak to the elements in the main part of the Reuters and Herald articles. I suggested in the Preliminary Research Report that the engineering and earth science costs per unit of production were going to escalate as a result of the lapsing of the cheap energy era. This difficulty is showing itself in the five fold increase in costs over one decade. If anyone believes this trend will continue, that would bring a $110 / barrel of oil cost within the next decade. I happen to believe the number will be substantially more then five fold, although I have given up my gambling and fortune telling careers.

The power hungry primates that serve as managers at the Canadian oil and gas companies will have much larger budgets to play with. People, Ideas & Objects research shows that oil and gas companies are organizationally constrained. For them to increase their throughput requires more resources. Consistent throughout the Draft Specification is an understanding that re-organization is the only proven method of increasing productivity. Adam Smiths pin shop proved this in the 1700's and we have benefited from specialization and the division of labor since. The need is evident to me. Please join me here.

Wednesday, November 12, 2008

International Energy Agency 2008 report.

The BBC is reporting the results of the International Energy Agency 2008 report contains a warning derived from the implications of the current credit crisis on investment in oil and gas,  and hence future production deliverables.

IEA is declaring the era of cheap oil is over. The cheaper prices we are experiencing today are attributable to the market meltdown as the world consumption of energy continues to tank. No one has any quality information as to the extent of the decline in demand, and as such is assuming the worst scenario and prices are collapsing. This is a temporary situation that may last for the full term of the markets meltdown, which may be the next five years.

The lack of investment is cited by the report as the reasons behind the warning. The geological aspects of peak oil, or declining production due to lack of reserves, is not the issue that the IEA is warning about. It is the lack of investment by the industry to ensure the market supply of energy is maintained. I would tend to agree with these assumptions that the lack of investment is a more dire and serious problem then peak oil.

This project does not have the financial resources to pay for the full report. However, the BBC coverage is providing us with the scope of the warning and the material information in the IEA's report.

But, they point out, field by field, declines in oil production are accelerating and more money will be needed in research and development to extract the oil there is.

While world oil supply will rise, the report's authors predict that massive investments in energy infrastructure will be needed - an eye-watering $26 trillion dollars up to 2030.

A significant amount of this money - $8.4 trillion - will need to be spent on oil and gas exploration and development.
Big numbers. I sarcastically assume that the structured hierarchy will be able to provide the industry with the appropriate organizational structure to 2030. It seems ridiculous to me to throw this type of money at the problem on the same basis as we have relied on in the past. Doing the same thing and expecting different results will be insane. The bureaucracy will fail, I would have 100% concurrence from those in the oil and gas industry and energy consumers in general. We need to begin the process of developing the software and building the organizations and systems necessary to undertake this critical task. A critical task that may materially affect our way and quality of life if we are not successful.

I suggest we develop the People, Ideas & Objects application based on the vision provided in the Draft Specification, please join me here.

Technorati Tags:

Saturday, June 09, 2007

Devon Energy gets it.

Speaking to Reuters Global Energy Summit, Devon Energy president John Richels made the following comments.

"We are fairly bullish, we don't see any large amounts of natural gas coming on in the near term."

and
"He said new oil wells being discovered around the world are coming from very complex plays that require considerable skill and expense to produce oil."
Guess the hierarchy will have to redouble their efforts. Oh wait, it can't, it's already at capacity.

Then it must be time to leave the laggards behind.

Technorati Tags: , , , ,